2013 (9) TMI 467 - AT - Service Tax

Reverse Charge Mechanism - Banking and Other Financial Services (BOFS) - fee paid for issuance of bonds outside India - import of service - Section 66A - Held that - It is not in dispute that the services provided by Silverdale were received by REL, and it cannot be gainsaid that the latter paid for the services by permitting the former to deduct their fees from the proceeds of the FCC Bonds. The limited case of REL is that the services were not received in India. They claim to have received the services outside India. Did they have any office or establishment in UK or elsewhere outside India to receive Silverdale s services outside India? Through whom did REL maintain/operate the Escrow Account in London? The learned counsel could not give any convincing reply to these queries of ours. We are of the view that, for the ends of justice, the party should get an opportunity to discharge their burden of proof in fresh proceedings. In the instant case, it has also been contended by the assessee that the services provided by Silverdale do not fall within the scope of any of the various clauses of the definition of BOFS under Section 65(12) of the Finance Act, 1994. It was so contended by the assessee in their reply to the show-cause notice also. But what appears from the impugned order is that this aspect was also not not examined by the learned Commissioner. This is another reason for de novo adjudication of the case. - matter remanded back.

Issues Involved:
1. Liability of service tax under Section 66A of the Finance Act, 1994.
2. Receipt of services in India.
3. Classification of services under 'Banking and Other Financial Services' (BOFS).
4. Applicability of extended period of limitation.
5. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Liability of Service Tax under Section 66A of the Finance Act, 1994:
The core issue was whether the services provided by Silverdale Services Ltd. (Silverdale) to M/s. Rajesh Exports Ltd. (REL) were taxable under Section 66A of the Finance Act, 1994, which deals with services received from outside India. The tribunal noted that Section 66A is an independent charging provision that allows for the levy of service tax on services provided by a person located outside India and received by a person located in India. This provision is also known as the 'reverse charge mechanism.' The tribunal highlighted that the services provided by Silverdale were received by REL, and the payment for these services was made by allowing Silverdale to deduct their fees from the proceeds of the FCC Bonds.

2. Receipt of Services in India:
REL argued that the services were provided entirely outside India and thus should not be subject to service tax. They relied on Circular No. B1/14/4/2006-TRU, dated 19-4-2006, which clarified that only services received in India were taxable. However, the tribunal pointed out that Section 66A does not explicitly require the receipt of services in India; instead, it refers to the receipt of services by a person who has a place of business in India. The tribunal found that the adjudicating authority had not adequately addressed whether the services provided by Silverdale were received in India and thus required a de novo examination.

3. Classification of Services under 'Banking and Other Financial Services' (BOFS):
REL contended that the services provided by Silverdale did not fall within the scope of BOFS as defined under Section 65(12) of the Finance Act, 1994. The tribunal noted that this aspect was not examined by the learned Commissioner in the impugned order, necessitating a fresh adjudication to determine if the services indeed fell under the BOFS category.

4. Applicability of Extended Period of Limitation:
REL argued that the demand was time-barred, citing various Supreme Court decisions. They claimed that they had a bona fide belief that they were not liable to pay service tax and thus did not suppress any facts with the intent to evade tax. The tribunal noted that the tax liability of REL came to light only after departmental investigations, suggesting suppression of facts. However, the tribunal did not conclusively address this issue, leaving it for re-examination in the remand.

5. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The Commissioner had imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. REL contested these penalties, arguing that they were not liable for service tax and thus should not be penalized. The Department, on the other hand, appealed for an enhancement of the penalty under Section 76. The tribunal decided that the issue of penalties should also be re-examined in the de novo proceedings, considering the fresh findings on the primary issues.

Conclusion:
The tribunal remanded the case for fresh adjudication on all issues, including the receipt of services in India, classification under BOFS, applicability of the extended period of limitation, and the imposition of penalties. The learned Commissioner was directed to take a fresh decision in accordance with the law and provide REL with a reasonable opportunity to present their case.

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